Heisenberg’s Friends

Chart Check (Super Awesome Cross-Asset Correlation Monitor Edition)

I’ve talked a ton about cross-asset correlations here and elsewhere over the past few months.

Indeed, the entire Trump reflation trade is based on negative stock/bond return correlations (i.e. a return to the post 2000 norm and a welcome break from the fear that dominated markets last September when quite a few observers feared the correlation might flip positive if the Fed did something stupid) and a strongly positive correlation between the dollar and stocks/rates.

You absolutely have to pay attention to correlations between assets. Far too many everyday investors render themselves incapable of understanding this because when they hear the word “correlation,” they are automatically transported back to their high school science class, when someone told them “correlation doesn’t equal causation.” As I’ve been at pains to drive home to some readers, that’s immaterial here. We’re not trying to prove anything. There’s no “causation.” We’re just tracking how and to what extent assets move with one another.

In any event, that’s a long introduction for a chart check, but below, find a great guide from Goldman that shows you how a whole universe of assets are correlated to US 10Y yields. You’ve got everything you need here: a 25th/75th percentile indicator and indicators for pre- and post-Trump. Enjoy.